Alan Shatter (Dublin South, Fine Gael) | Oireachtas source

If the Senator contained himself, we all might have more time.

I have emphasised on more than one occasion that we should not forget that there are many different types of creditors who may be potentially involved in the new processes. Many persons or companies may be both debtors and creditors. While I can understand the somewhat visceral feelings towards financial institutions and their contribution to our current economic difficulties and the economic disaster that hit this country, we must not lose sight of our current objective, which is to introduce reformed, workable and balanced insolvency legislation. Such legislation is a required feature of a properly functioning economy. It will assist not only debtors and financial institutions, but also corner shops, tradespersons, local co-operatives, credit unions etc. All debtors and creditors are concerned by this reform. For their sake and the sake of the wider economy, all must be treated fairly. Many individuals are currently in personal financial difficulty because of the failure of other individuals to pay for work properly completed or goods or services supplied to them. This approach, which seeks balance and fairness, has been criticised by some commentators as suggesting that creditors, particularly mortgage creditors, will exercise a veto. Such a contention is based on an incorrect view of how normal commercial contractual issues are resolved. Where one borrows, one must repay where one can. If, for example, an individual carries out electrical work at one's home or retail outlet or does essential plumbing repairs, that individual is entitled to be paid. If the debtor is genuinely unable to pay, negotiation with creditors may resolve the difficult, and this Bill provides the new framework for sensible negotiation.

The approach in the proposed debt settlement and personal insolvency arrangements is that the insolvent debtor will, with the assistance of a personal insolvency practitioner, put forward what the debtor considers to be a realistic offer to his creditors that will restore the debtor to solvency within a reasonable period while, at the same time, giving creditors a better financial outcome than the alternatives of debt enforcement or bankruptcy. The creditors will need to consider carefully the debtor's offer, conscious that if they refuse, the debtor has another option - the standard debt discharge procedure available under the reformed bankruptcy laws. Bankruptcy may be considered the ultimate appeal mechanism of the debtor. However, in that eventuality which I still believe is best avoided, control is effectively lost by both sides. It would make sense for the debtor and creditor, especially where there is only one main creditor, to seek to conclude a bilateral agreement.

The reform I am introducing will, in addition to providing new legal remedies, provide a significant incentive for financial institutions to develop and implement realistic agreements to resolve debt issues with their customers.

The Bill's provisions relating to a debt settlement arrangement or a personal insolvency arrangement are specifically designed, as far as is practicable, to facilitate a debtor's continued ownership and occupation of his or her principal private residence, unless the debtor does not wish to do so. The personal insolvency practitioner, in preparing a personal insolvency arrangement, shall not, in so far as is practicable, include a proposal that the debtor dispose of an interest in or cease to occupy their principal private residence and is required to consider any appropriate alternatives with regard to addressing an individual's level of indebtedness. The personal insolvency practitioner must have regard to a variety of matters in this context including the likely costs to the debtor of remaining in occupation of a principal private residence, whether such costs would be disproportionately large and the overall background financial circumstances. Consideration must also be given to the reasonable accommodation needs of a debtor, and his or her dependants, and to the cost of alternative accommodation. It may be appropriate in particular circumstances having regard to the value of a family home that it be sold and a proportion of the funds realised used to fully or partial discharge debt.

An application for a debt settlement arrangement or personal insolvency arrangement must be made by a debtor through a personal insolvency practitioner, PIP. The debtor is entitled to appoint a licensed PIP of his or her choosing. The development of an appropriate architecture for the regulation of persons to act as PIPs in the debt settlement arrangement and personal insolvency arrangement processes has been ongoing since publication of the Bill. It has now been decided by the Government that the insolvency service will be the organisation to provide direct regulation of PIPs with any necessary technical assistance provided by the Central Bank. This approach will provide a unified focus on the insolvency area.

These provisions are being drafted by the Parliamentary Counsel and I hope to be in a position to introduce the necessary amendments here on Committee Stage. However, the Bill, as it currently stands in Part 5, essentially provides for an enabling section in regard to the regulation of PIPs. I expect those persons who come forward to seek regulation as insolvency practitioners will likely be drawn from the legal and accountancy professions. However, applications will also be welcome from other suitably qualified persons in the broad financial advisory sector who are not members of those professions. Neither, my Department nor the proposed insolvency service will be involved in the recruiting of practitioners.

The Bill requires the terms of the proposed arrangement make provision for the fees and outlays of the PIP, as well as specifying the manner in which they will be paid. Those terms are subject to the approval of both the debtor and the requisite majority of creditors. Generally speaking, the costs of personal insolvency practitioners involved in the management of any form of insolvency are met by the product of that insolvency. There are no provisions under the Bill for the State to pay the fees of personal insolvency practitioners.

The Money Advice and Budgeting Service, MABS, will continue its valuable role of assisting and advising people with debt problems. In that regard, MABS has agreed to operate as an approved intermediary in regard to processing applications for debt relief notices where it is likely to be the primary such intermediary. Other organisations have also indicated an interest in becoming involved in the processing of debt relief notice applications. These would most likely be non-profit organisations rather than personal insolvency practitioners. Determination of appropriate guidelines with regard to the reasonable expenses that may be allowed to or negotiated by debtors in an insolvency process will require further consideration. There are no such guidelines readily available or agreed at this point. Different organisations, both public and private, will have their own views and proposals in this context. This is an area of work with which MABS is particularly familiar in the context of its current operations. The issue of reasonable living expenses is of particular importance in the qualifying criteria for the debt relief notices.

The completion of the prescribed financial statement in the case of each debt relief notice, debt settlement arrangement and personal insolvency arrangement will assess in detail the lifestyle expenditures of the debtor. The approved intermediary, or the PIP, as the case may be, will take account of the obvious basic necessities of living, for example, food, heat and light, etc. However, he or she will question the continuation by the debtor of certain other lifestyle expenditures. Persons who are insolvent cannot realistically expect either creditors or the taxpayer to fund a lifestyle that has been based on credit. This approach is not intended to be ungenerous but we must be realistic to prevent possible misuse.

It is my hope the provisions contained in the Bill will act as a catalyst for honest, open and constructive engagement between both unsecured and secured creditors and those in genuine substantial financial difficulty. The Bill provides concrete options for those genuinely unable to discharge their financial obligations as opposed to those who can but will not do so.

Our shared objective must be to assist the greatest possible number of borrowers who are experiencing genuine debt problems, in particular with mortgage arrears, to be restored to sustainability. For this to occur, financial institutions will have to provide a larger and more imaginative range of financial debt resolution options to address individual customers' financial reality and deploy staff with the expertise to properly engage with customers labouring under the weight of unsustainable debt. If the financial institutions fail to do so, they will unnecessarily drive indebted customers into bankruptcy to the detriment of the financial institutions which may ultimately recover less of the debt owed than could be recovered under a personal insolvency arrangement.

While my focus today must be on outlining to the House the provisions contained in the Bill, it is important to reiterate what is not in it. The Bill does not provide for the automatic writing-off of debt, either secured or unsecured, in the debt settlement arrangement or personal insolvency arrangement processes. An agreement that is reasonable and workable for all parties must be concluded on a case-by-case basis. Where a debtor is not insolvent and can meet obligations to service his or her mortgage or other debt obligations, he or she must continue to do so. Neither does the Bill provide for any process whereby negative equity can be automatically written off for solvent debtors able to meet their repayment obligations. Such a phenomenon is a reflection of the current market value of the asset concerned. It does not exclusively relate to residential property. It could affect all forms of property, for example, shares and investments or art. Negative equity is not an issue of insolvency for the purposes of the Bill. Of course, where an individual's debts are unsustainable, negative equity may form part of his or her overall financial burden. It is important to emphasise the Bill does not relieve solvent debtors of their responsibility to meet their contractual obligations.